300
MACROECONOMICS
it profitable for the firm to replace insiders by outsiders. We can refer to
E
+
MC
H
+
MC
F
as the relative profitability constraint or the maximum wage
that insiders may obtain without being replaced by outsiders.
Let the number of insiders at the time of analysis
be
m*.
Instead of bar-
gaining over the rents with firms, assume that insiders acquire the entire rent
generated by the marginal turnover costs (
MC
H
+ MC
F
)
.
With
m*
insiders,
the wages that they are able to demand will be given by
w
1
, giving point A on
the IDC. At this wage, all insiders get to keep their jobs and no entrants ...
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